There has been a rise in the domestic & global tea price and Jay Shree Tea & Industries Ltd is the 2nd largest producer of Tea in India. For FY 11 to FY 13 we are expecting a compounded annual growth rate (CAGR) of 15% because of rise in Tea production and increasing contribution of good quality Darjeeling tea.
The company owns 6 estates in Darjeeling and produces high quality orthodox Tea. Darjeeling tea production is mainly exported to Middle East countries and Russia. In 2010 the average selling price of Darjeeling Tea was Rs 285 per kg where as black tea average selling price was 120 per kg. With a huge demand of good quality tea in the international markets we may expect a further 15 to 20 Rs hike in the prices. Hence, with a better realisation and increased exports the company’s bottom line and top line will increase. We are expecting their revenue to grow at 12 % CAGR from FY 11 to FY13E and EPS @ 9% in FY 11 to FY13E.
At the current market price of Rs 138 the stock is trading 5.9x and 4.6x of its FY11E & FY12E. The Earning Per share (EPS) of the stock is 23.89 for FY 11 and 29.7 for FY 12. The annual tea production is expected to be around 980-1000 million kg and we are expecting a decline in Kenya and Sri lanka production by 16 %. The Tea prices will remain firm and this will improve the company’s performance.
“Bell the bull says: we value the stock to trade at around Rs 190, 6 times of its FY12 earnings in the short to medium term.”